Vertical agreements

Special rules and exemptions

Do any special rules or exemptions apply to the assessment of anticompetitive agreements between undertakings active at different levels of the supply chain in digital markets in your jurisdiction?

The standard EU competition rules apply to the assessment of such agreements: there are no special rules or exemptions for digital agreements.

The Commission may propose new legislation and revised guidance in the near future, in part motivated by increased digitisation of the economy. In relation to vertical agreements in particular, the Commission is currently consulting on updates the Vertical Agreements Block Exemption Regulation (VBER), and its Vertical Guidelines. In this context it published a Staff Working Paper in September 2020 which contains useful insight into its assessment of vertical restrictions, including in the digital sector. It published proposed revisions to the VBER and Vertical Guidelines in July 2021. 

Online sales bans

How has the competition authority in your jurisdiction addressed absolute bans on online sales in digital markets?

The Commission has not brought any specific enforcement actions with regard to absolute bans of online sales. There is, however, EU Court jurisprudence, primarily Coty (2017) and Pierre Fabre (2011). 

In Pierre Fabre a cosmetics supplier had restricted its distributors to selling its products only in a physical store where a pharmacist was present (ie, it was a de facto absolute ban on online sales). The CJEU held that such a ban has the object of restricting competition (it was in effect a ban on passive sales), and will be in breach of article 101(1) of the Treaty on the Functioning of the European Union (TFEU) unless it can be objectively justified.

Coty concerned a seller of luxury cosmetic goods that prohibited its authorised distributors from selling online other than via the distributor’s online store, to ensure that the luxury character of the products was preserved offline and online (it was not an absolute ban). The CJEU held that, in the context of a selective distribution system, a ban on selling through third-party platforms does not infringe article 101(1) TFEU provided that the following conditions are met: 

  • the objective of the restriction is to preserve the luxury image of the goods concerned; 
  • it is applied objectively and in a non­discriminatory manner; and 
  • the restriction is proportionate and does not go further than necessary. 

 

The CJEU thus treated the ban as a qualitative restriction necessary to protect the image of the goods concerned, rather than as a restriction of the customers to whom authorised distributors could sell the luxury goods or as a ban of passive sales to end users, which would be in breach of article 101(1) TFEU and amount to a restriction of competition by object. The CJEU’s references to ‘luxury’ arise from the facts of Coty, however, the judgment provides the framework for analysis of online sales bans for other products (see the Commission’s Competition Policy Brief, April 2018).

The above case law is reflected in the Commission's proposed revisions to its VBER and Vertical Guidelines (July 2021). In particular, it recognises that significant developments in e-commerce have taken place since the original VBER and Vertical Guidelines were adopted in 2010, and no longer treats the majority of online sales restrictions as passive sales restrictions and recognises that online sales and brick-and-mortar shops are inherently different in nature. 

Resale price maintenance

How has the competition authority in your jurisdiction addressed online resale price maintenance?

Under EU law, resale price maintenance (RPM) practices are generally a ‘hardcore’ restriction of competition. In its E-commerce Sector Inquiry and Staff Working Paper evaluating the VBER, the Commission identified that increased price transparency and easier price monitoring online (including the use of automatic software programmes), which were increasingly common, has made it easier for manufacturers to monitor and enforce RPM, which may exacerbate the negative effects of RPM.

Traditionally, national competition authorities, rather than the Commission, scrutinised RPM agreements. However, in July 2018, the Commission fined consumer electronic companies Asus, Denon & Marantz, Philips and Pioneer a total of €111 million for imposing fixed or minimum resale prices on online retailers. These companies had also used algorithms to monitor price levels, and blocked supplies to retailers offering their products at low prices. 

Geoblocking and territorial restrictions

How has the competition authority in your jurisdiction addressed geoblocking and other territorial restrictions?

The EU Geo-blocking Regulation prohibits unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment. Under the regulation, a supplier cannot contractually prohibit a retailer from responding to unsolicited customer requests (ie, passive sales), in specific situations covered by the regulation. 

Territorial restrictions more generally (and not specific to the digital sector) are covered by article 101 TFEU, with the VBER containing a safe harbour for certain territorial restrictions. The Vertical Guidelines provide a framework for the assessment of such restrictions. 

In terms of enforcement, this is an area in which the Commission has been increasingly active recently (in particular following its E-commerce Sector Inquiry). In 2018, it fined Guess for, among other things, restricting retailers in its selective distribution system from certain online selling and advertising activities and from selling cross-border to consumers in other member states. In 2019 and 2020 it fined Nike, Sanrio and NBC Universal for restricting sales of licensed merchandising products consisting of one or more of:

  • direct measures restricting out-of-territory sales by licensees (eg, clauses explicitly prohibiting these sales and obligations to notify out of-territory sales to the licensor); 
  • direct measures restricting online sales; 
  • indirect measures to implement or encourage compliance with the sales restrictions (eg, threatening licensees with ending their contract if they sold out-of-territory, and carrying out audits); 
  • an obligation on licensees to pass on the out-of-territory sales restrictions to their customers; and 
  • direct measures restricting sales beyond allocated customers or customer groups. 

 

In February 2020, the Commission fined Meliá for discriminating between customers based on their place of residence in its hotel accommodation agreements with tour operators.

In January 2021, the Commission fined Valve and five game publishers (Bandai Namco, Capcom, Focus Home, Koch Media and ZeniMax) €7.8 million for 'geo-blocking practices'. The Commission found that Valve and game publishers had restricted cross-border sales of certain PC video games on the basis of the geographical location of users within the European Economic Area (EEA). On 30 March 2021, Valve lodged an appeal before the General Court against the Commission’s finding that it has not cooperated in the case. 

Platform bans

How has the competition authority in your jurisdiction addressed supplier-imposed restrictions on distributors’ use of online platforms or marketplaces and restrictions on online platform operators themselves?

The EU competition law framework for assessing online sales bans has been set out by the CJEU in Pierre Fabre (2011) and Coty (2017), the latter arising from a supplier’s ban on a distributor selling on Amazon’s marketplace. In Coty, the CJEU held that a restriction within a selective distribution system that pursues a legitimate objective is lawful under article 101(1) TFEU only if the quality criteria are laid down ‘uniformly’ and ‘not applied in a discriminatory fashion’.

The Commissions’ Vertical Guidelines recognise that a supplier operating a selective distribution system may legitimately require quality standards for the use of websites that resell its goods. In respect of third-party platforms or marketplaces the current Vertical Guidelines explain (in paragraph 54) that: 

 

a supplier may require that its distributors use third party platforms to distribute the contract products only in accordance with the standards and conditions agreed between the supplier and its distributors for the distributors' use of the internet. For instance, where the distributor's website is hosted by a third-party platform, the supplier may require that customers do not visit the distributor's website through a site carrying the name or logo of the third-party platform.

 

The Commission's proposed revisions to the Vertical Guidelines permit wider restrictions, including on the use of online marketplaces as long as these are not a de facto ban on all online sales (see paragraphs 313 to 322). 

In 2018, the Commission fined Guess for restricting retailers in its selective distribution system from inter alia selling online without a prior specific authorisation by Guess. Guess had full discretion for this authorisation, which was not based on any specified quality criteria. The Commission concluded that this constituted a restriction of competition by object. Bans on online sales, or restricting sales to certain platforms, were included in some of the agreements in Sanrio and NBC Universal, but the Commission analysed those as part of wider restrictions on out-of-territory sales. 

National authorities in the EU appear to be taking a harsher stance against online platform bans (eg, Germany in particular).

Targeted online advertising

How has the competition authority in your jurisdiction addressed restrictions on using or bidding for a manufacturer’s brand name for the purposes of targeted online advertising?

A part of the conduct for which the Commission fined Guess in 2018 was restricting retailers in its selective distribution system from bidding on the Guess brand name in sponsored search auctions. This helped maximise traffic to Guess’ own website. The Commission concluded that, assessed in context, this online search advertising restriction had as its object the reduction of authorised retailers’ ability to advertise and ultimately sell the contract products to customers, in particular outside their contractual territory or area of activity, and this limited intra-brand competition. As such it was a restriction of competition by object.

Most-favoured-nation clauses

How has the competition authority in your jurisdiction addressed most-favoured-nation clauses?

The Commission’s e-Commerce Inquiry concluded that MFNs are not hard-core restrictions and must be analysed on a case-by-case basis. Its Special Advisers’ Report recognised that MFN clauses may have both pro- and anticompetitive consequences and their effects depend on the particular characteristics of the markets. It noted that due to the very strong network externalities (especially in multisided platforms), incumbency advantage is important and strict scrutiny is appropriate. It flagged that any practice aimed at protecting the investment of a dominant platform should be minimal and well targeted. While recognising that case-by-case analysis is required, the report suggested that if competition between platforms is sufficiently vigorous, it could be sufficient to ban ‘wide’ MFNs clauses (those that prevent sellers on a platform from price differentiating between platforms); but if competition between platforms is weak, there could also be a need to ban ‘narrow’ MFNs (clauses that prevent sellers from offering lower prices on their own websites). 

In June 2015, the Commission opened an investigation into Amazon’s use of MFN clauses in distribution agreements with e-book publishers in Europe. These required publishers to offer Amazon favourable (or, at the very least, similar) terms and conditions (ie, on price, promotions, distribution models) to those offered to its competitors, and obliged publishers to inform Amazon about more favourable terms given to competitors. In May 2017, the Commission accepted commitments from Amazon not to enforce or introduce these clauses for a five-year period. Shortly before that, in April 2017, the Commission published the results of a monitoring exercise it conducted together with 10 national competition authorities (NCAs) into the effects of changes to MFNs in the online hotel booking sector (where the NCAs have been active).

Under the Commission’s proposed revisions to the VABER and Vertical Guidelines, it proposes to remove the benefit of the block exemption for 'wide' MFNs (across-platform retail parity obligations) imposed by providers of online intermediation services. It thus proposes to add a new type of excluded restriction under article 5 of the Draft VBER, which provides that the block-exemption will not apply to:

 

Any direct or indirect obligation causing a buyer of online intermediation services not to offer, sell or resell goods or services to end users under more favourable conditions using competing online intermediation services (Article 5(1)(d) Draft VBER). Instead, these types of restriction will now require an individual assessment under Article 101 TFEU.

 

Under the proposals, other narrow retail parity obligations, as well as wholesale parity obligations, would continue to benefit from the safe harbour provided by the Draft VBER.

Multisided digital markets

How has the competition authority in your jurisdiction addressed vertical restraints imposed in multisided digital markets? How have potential efficiency arguments been addressed?

The Commission has considered vertical restraints in multisided digital markets in various reports (eg, E-commerce Sector Inquiry and Special Advisors Report), as well as in cases such as Amazon e-books. In terms of efficiencies, these can be raised by parties under investigation, in which case they would be assessed by the Commission. However, its Special Advisors Report acknowledges that: 

 

[b]ecause of the innovative and dynamic nature of the digital world, and because its economics are not yet completely understood, it is extremely difficult to estimate consumer welfare effects of specific practices.

Other issues

Have any other key issues emerged in your jurisdiction in relation to the application of competition law to vertical agreements in digital markets?

In November 2018, the Commission opened an investigation into exclusivity provisions in agreements of airline booking system providers Amadeus and Sabre. The Commission is concerned that their agreements with their customers, airlines and travel agents, may restrict those customers from using other suppliers of ticket distribution services, in breach of article 101 TFEU. 

Law stated date

Correct on

Give the date on which the information above is accurate.

12 October 2020